Sensient Technologies Corporation

Good morning and welcome to the Sentient Technologies Corporation 2026 First Quarter Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Tobin Tornell. Please go ahead, sir.

Great. Thank you. Good morning. Welcome to Sentience Earnings Call for the first quarter of 2026. I'm Tobin Tornell, Vice President and Chief Financial Officer of Sentient Technologies Corporation. I'm joined today by Paul Manning, Sentient's Chairman, President, and Chief Executive Officer. Earlier today, we released our 2026 first quarter results. A copy of the earnings release and the slides we'll be using during today's call are available on the investor relations section of our website at sentient.com. During our call today, we will reference certain non-GAF financial measures. which remove the impact of currency movements, costs of the company's portfolio optimization plan, and other items as noted in the company's filings. We believe the removal of these items provides investors with additional information to evaluate the company's performance and improves the comparability of results between reporting periods. This also reflects how management reviews and evaluates the company's operations and performance. Non-GAAP financial results should not be considered an isolation from or a substitute for financial information calculated in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release and slides. We encourage investors to review these reconciliations in connection with the comments we make today. I'd also like to remind everyone that comments made during this call, including responses to your questions, may include forward-looking statements. Our actual results may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings. We urge you to read Sentient's previous SEC filings, including our 10-K and our forthcoming 10-Q for a description of additional factors that could potentially impact our financial results. Please keep these factors in mind when you analyze our comments today. We'll start on slide five of the deck. Now we'll hear from Paul. Thanks, Tobin.

Good morning, good afternoon. Earlier today, we reported our first quarter results. We've gotten off to a very strong start to 2026, delivering 7% local currency revenue growth, 10% local currency adjusted EBITDA growth, and 14% local currency adjusted EPS growth. These results exceeded our early expectations and positioned us nicely for the year. We continue to have particularly strong results from the color group, which delivered 12.3% local currency revenue growth and 13.2% local currency operating profit growth. Commercial activity around natural color conversions continues to be very strong, and the momentum is building. The flavors and extracts group also had a solid quarter, delivering 1.7% local currency revenue growth and local currency operating profit growth of 5.1%. Asia Pacific Group contributed local currency revenue growth of 4.7% and local currency operating profit growth of 14.5%. Each of our groups has had a nice start to the year. During the first quarter, we generated strong new sales wins across each of our groups, and our sales pipelines continued to grow to support our revenue expectations. While we were seeing particularly high win rates in natural colors, Our innovative product portfolio is also fueling success in each of our other businesses. Our customer service levels remain exceptionally high. And despite a sluggish overall food market in many geographies, we believe we are well positioned to continue our sales wins success. As I mentioned on previous calls, the preparation for the wholesale conversion of synthetic colors to natural colors in the United States remains our priority and current strategic focus. We are not seeing any slowdown in conversion activity, and I will reaffirm what I have previously stated. The U.S. conversion to natural colors is the single largest opportunity in Sensene's history. We are continuing investments around the world to increase our production capacity and to optimize our product portfolio. We also are continuing to build a resilient supply chain to provide the botanicals necessary to produce natural colors and to support the needs of our customers in alignment with their launch dates. These investments will support and position us for our $1 billion natural color sales goal. To advance further with customers on application support, they're also confirming that while natural colors may cost more than synthetic options, the cost impact remains manageable since natural colors are still a relatively small part of overall ingredient costs in most product categories. First quarter had no shortage of newsworthy developments in trade, tariffs, and geopolitics. We are continually monitoring these situations, but would like to provide some information around the conflict in Iran. We do not have any significant operations in the Middle East, and we are working to mitigate any potential supply chain risks that may result from the overall increase in fuel and certain commodity prices. In past circumstances like COVID and the invasion of Ukraine by the Russians, we have proven our ability to adjust prices where necessary and to minimize our financial impact and any major disruptions to our customers. This continues to be my expectation with the war in Iran. Now turning to slide six in our group results, Kelly Group had an excellent first quarter delivering 12.3% local currency revenue growth and 13.2% of local currency operating profit growth. The group's first quarter adjusted EBITDA margin was 24.4%, flat the prior year, despite our increased investments in support of the natural color conversion opportunity. The group continues to sell technically differentiated products, controls costs, execute on pricing strategy, and deliver quality new wins. We are starting to see an uptick in customer orders for conversion of their synthetically colored products in the U.S., and the pipeline to $1 billion continues to look very promising. I now expect the color group to deliver double-digit local currency revenue growth in 2026. Previously, I expected high single- to double-digit growth. I continue to expect the natural color conversion sales to build as the year progresses. As the sales build, I expect profit leverage to improve as well. Profit leverage in Q2 and Q3 for the color group will be similar to the relationship in Q1. Overall, the color group got off to a tremendous start to 2026 and remains on a great trajectory, and I'm very excited about the future ahead of us. Turning to slide seven. Flavors and extracts groups saw local currency revenue growth in the first quarter of 1.7% and an increased local currency operating profit growth of 5.1%. The group's adjusted EBITDA margin was 17.2% of 30 basis points versus the prior year's comparable quarter. The results exceeded our expectations in the first quarter. The group continues to optimize its costs and focus on new and defensible flavor wins, and these factors have fueled the favorable profit leverage. Overall, we expect Q2 to be similar to Q1, with strengthening revenue and profit performance as we move through 2026. Now turning to slide eight, the Asia-Pacific group had a nice rebound in the first quarter, delivering 4.7% local currency revenue growth and 14.5% local currency operating profit growth. The group's adjusted EBITDA margin was 26.1%, up 220 basis points versus the prior year's first quarter. Overall, the Asia-Pacific group got off to a substantially faster start than we anticipated and is set up nicely for the future. The regional demand constraints that the group has experienced over the last few quarters improved in Q1. Plus, we generated strong new sales wins. Pending resolution of the Iran war, I continue to expect improvement throughout the year with greater sales and profit improvement in the back half of 2026. Now turning to slide nine. Regarding our full year guidance, we are increasing our local currency ranges for the year. We now expect our local currency revenue to be up high single to double digits. Our previous guidance was for mid-single to double digits. We now expect local currency adjusted EBITDA and EPS to grow at high single to double digit rates. Our previous guidance called for mid-single digit to double digit local currency adjusted EBITDA growth and mid-single to high single digit local currency adjusted EPS growth. On the capital allocation front, we still expect consolidated capital expenditures of $150 million to $170 million in 2026 to ensure that we are prepared for the forthcoming natural color conversion activity and that we can achieve our $1 billion sales goal. As I mentioned last quarter, we expect to spend between $225 million and $250 million on natural color capital over the next couple of years. We continue to anticipate an increase in our natural color working capital and maintain our goal of significantly improving our ROIC to the mid-teens over the next few years. Beyond capital expenditures, we will continually evaluate sensible acquisition opportunities, but we do not anticipate any share buybacks at this time. Now, before I turn the call over to Tobin, I'd like to provide some information on a couple of our innovative technologies. Shown on slide 10 is some information about two of our popular natural color platforms. Avalanche is a global portfolio of clean label alternatives to titanium dioxide. We're also showing a range of extrusion-stable natural colors that are ideal for use in production processes utilizing high heat or pressure. Titanium dioxide is a whitening agent commonly used in baked goods, frostings, confections, and makeup applications. In recent years, there has been a growing demand from our customers to remove titanium dioxide from their products. This demand has been driven by bans or regulation changes across the globe. It's quite difficult to replace TiO2 due to its exceptional performance characteristics and cost effectiveness. Our Avalanche portfolio addresses the market need for bright white products and is designed to best match the performance of titanium dioxide. The portfolio is robust and continues to grow as new technical application challenges arise. Next, I'd like to highlight our extrusion-stable natural color offerings. They have been developed for maximum stability and performance in high-heat or pressure processes. For example, extrusion is commonly used to make breakfast cereals. Several large retailers and CPG companies have made announcements about their commitment to rapidly remove synthetic dyes from this category and therefore it remains a priority for us. If you'd like more information on any of our natural color technologies, please visit our website. Since 2019, the company's local currency adjusted revenue compounded annual growth rate is approximately 6%. Our growth in the first quarter is above that historical rate, and I'm quite pleased with the trajectory we are on for 2026 and beyond. I'm excited about the growth opportunities within each of our groups. Our pipeline for natural color conversions continues to build, and I'm pleased with our progress toward our overall revenue goal. We believe long-term investors are well positioned to benefit substantially from our execution. We will continue to emphasize investment in research and development, production capacity, and a resilient supply chain in order to be ready to support our customers. The growth we are experiencing is a direct result of the execution of our long-term strategy seizing the opportunities in the markets in which we operate. I remain optimistic about 2026 and the future of our business. TOBO will now provide you with additional details on the first quarter results.